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Building an amazing online business has never been easier. And, it’s never been more difficult.
The rise of eCommerce has all but eliminated traditional barriers to entry, making the move from zero to one — from idea to product to customer — more accessible than ever before. Likewise, the tools and technology surrounding eCommerce have solved many of the problems that once held founders back from scaling their companies.
At the same time, all that ease of use and the lure of possibility have given birth to a flooded online market where competition is fierce and standing out is hard.
To start and grow a profitable online business takes a comprehensive eCommerce strategy, which is exactly why we created this resource.
Traditionally, business plans and marketing strategies have surrounded five “Ps”: price, product, promotion, place, and people. While still useful, eCommerce has reshaped how online businesses grow. To reflect those changes and set yourself up for success, you need...
A smart strategy for getting started built around five pillars:
All businesses are rooted in selling something worth buying. That’s hardly a surprise. What is surprising is how few online businesses set their foundations here. Thanks to the rise of dropshipping, it’s never been easier to launch an online store, churn out content and ads, and pocket the profit.
There’s nothing inherently wrong with that approach, unless your goal is to build and grow an online business that lasts. In that case:
The secret to great marketing is... Build a great product.Noah Kagan
Founder of Sumo, Dir. of Marketing at Mint & Facebook employee number 30
A great product isn’t just the secret to marketing; it’s the secret to business itself. The question is: how can you be sure you’ve got a great product?
A maze of terminology and paths exist. Our favorite comes from Sean Ellis and Morgan Brown’s book Hacking Growth: How Today's Fastest-Growing Companies Drive Breakout Success. Don’t let the title throw you off. Far from a shallow list of “hacks,” the book chronicles the rise of numerous online heavyweights — many of which Ellis and Brown were personally involved in:
“While creating a must-have product alone is not sufficient for breakout success, it is the baseline requirement for rapid and sustainable growth.
“The hard truth is that no amount of marketing and advertising — no matter how clever — can make people love a substandard product. If you haven’t created and identified core value before you make your growth push, you’ll either end up with illusory growth at best or market rejection at worst.”
To determine and test whether your product is a “must-have,” the authors suggest a deceptively simple multiple-choice question:
“How disappointed would you be if this product no longer existed tomorrow?”
Great products — according to Ellis and Brown — must hit at least 40% in the “very disappointed” category. That’s the quantitative threshold that reveals a qualitative breakthrough.
No matter what score you get, much can be learned. Even if your product or products fail miserably, that’s a golden opportunity to ask follow-up questions and learn more. The book offers many more questions to flesh out the “must-have survey,” but here are three of the most useful follow-ups:
Our other favorite model for honing great products comes from Clayton Christensen and Michael Raynor’s The Innovator’s Solution:
“Customers — people and companies — have ‘jobs’ that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can ‘hire’ to get the job done. This is how customers experience life.
“Their thought processes originate with an awareness of needing to get something done, and then they set out to hire something or someone to do the job as effectively, conveniently and inexpensively as possible.”
When we buy a product, we essentially 'hire' it to help us do a job.Clayton Christensen
Harvard Business Review
Forcing yourself to examine your product in the context of, “What ‘job’ is our customer trying to ‘get done’?” not only makes for better products and marketing, it also leads directly to our next P …
At the end of the day, businesses don’t exist to make profits. They exist to solve problems. Not abstract problems, but real, tangible problems for real, tangible people. That might sound counter-intuitive, and we’ll address profit as the fifth P. The key is to always remember that the Internet didn’t invent anything when it comes to building a thriving business.
The DNVB requires the commercialization of an e-commerce channel, but that channel is an enablement layer — it’s not the core asset.”
In Dunn’s words, “Digitally native vertical brands are maniacally focused on the customer experience and they interact, transact, and story-tell to consumers primarily on the web.” The words to pay attention to in that quote are customer experience.
Given the flood of choices now available, knowing, serving, and developing direct and meaningful relationships with customers is nonnegotiable. Unfortunately, most online businesses cast their net too wide. In an attempt to be everything to everyone, they end up being nothing to no one.
First, it starts with clearly identifying your target market through “personas.” Richard Lazazzera — founder of A Better Lemonade Stand — offers a wealth of questions to guide you in How To Build Buyer Personas For Better Marketing:
To keep your persona (or, personas) as real as possible, Lazazzera introduces a fictional character named Alex:
While genuine people work best — i.e., a real picture of a real customer — even stock photos help bring personas to life.
Second, and going a bit deeper, is what Copyblogger calls “empathy maps.” An empathy map is a discovery tool designed to move beyond surface characteristics — demographics like age, gender, location, income, etc. — and explore the hearts and minds of your ideal customers.
It’s all about asking the right questions:
To organize this process, Copyblogger provides a template with four quadrants:
Returning to Dunn’s quote, even though eCommerce is one of many channels, its centrality cannot be overstressed. Once you’ve determined who your customers are, the question then turns to platform…
Naturally, eCommerce platforms are a frontline issue. And, odds are, you’ve already chosen one for yourself. Nonetheless, because we’re taking a detailed look at foundations, that decision is worth returning to.
Options abound. From plug-and-play, drag-and-drop platforms — like Squarespace and Wix — to mid-tier options — like Shopify and WooCommerce — to enterprise-level offerings — Magento, Shopify Plus, Demandware, IBM, etc.
Providing a definitive answer to “Which one’s best?” is futile. Instead, your focus should be on, “What’s best for us next?”
That last word isn’t a typo. Selecting the right platform based on your current level of needs is shortsighted. Far better is zeroing in on where your business wants and needs to go next. Realistically anticipating growth isn’t just smart; it’s powerful motivation. The divide between what you are versus what you want to become — coupled with the mindsets that accompany them — can mean the difference between success and failure.
We’ll examine that interplay more fully below in the next P: plan. For now, the best resource to get a lay of the eCommerce-platform landscape is BuiltWith: a “web technology information profiler tool.” As the name implies, BuiltWith catalogues over 30 thousand web-based technologies and over a quarter of a billion websites to uncover the shopping carts, analytics, hosting, and marketing tools those sites are built with.
You can look under the hood on a site-by-site basis using their free engine. But BuiltWith has also pulled together a comprehensive index of eCommerce at large: broken down by locations, vertical categories, and platform usage by site traffic:
Data compiled by BuiltWith
Data compiled by BuiltWith
Data compiled by BuiltWith
The critical thing about this data is that (1) it comes from an objective source and (2) you can use it to evaluate the platforms other businesses choose relative to their size or based on their vertical:
For a more detailed analysis, we suggest three additional resources clustered around the words “replatform” and “migrate.” Be warned, each of these resources is intimidating in its size and scope. Instead of trying to work your way through every page, every question, every checklist…
Pick and choose the areas that are most pressing and use them as jumping off points as well as to avoid blind spots you may not have considered.
Over the last decade, Paul Rogers has helped lead a number of both B2C and B2B eCommerce replatforming projects. He is a Magento 1 and Magento 2 Solution Specialist, a Google Partner, as well as a Shopify Plus Partner. His clients include a who’s who of major online retailers. In other words, Rogers is a trusted source of eCommerce expertise who does not pledge his allegiance to any single provider.
This exhaustive resource is as useful as it is intimidating. Especially when you first stare down its 157 point checklist. Thankfully, you can download the template as both a printable PDF as well as a directly editable Google Doc. Pay special attention to the first ten questions as they outline the overall process every business should consider.
Equally exhaustive, BigCommerce’s guide has the added benefit of including a Google Sheet you can edit, share, and save. Each section has its own tab and a ranking you can assign. This format makes using it a bit easier than Shopify Plus’ template (although it may simply come down to you and your team’s personal preference).
Clearly, the last two resources come directly from eCommerce platforms themselves. So bear that in mind — weighing their questions and your answers accordingly.
The first three Ps have covered much of what goes into planning. Now it’s time to put it all together into a business strategy comprised of 10 parts:
Compose a summary of the following nine parts as your final step, but place it first in the order of your plan’s presentation. An executive summary should include a brief description of your business, your origin story, your products and services, the people you sell to, as well as relevant financial information. This will be the document employees, advisors, and investors read most often (so make it count).
Objectives are broad statements of your most pressing and important goals. They should be qualitative descriptions: short, memorable, and motivational. Key results, in contrast, are quantitative metrics you’ll use to measure and monitor those objectives. John Doerr, who introduced OKRs at Google, outlined this template: “We will [objective] as measured by [set of key results].”
Also known as a “unique selling point,” your value proposition is similar to a mission statement except that it’s customer facing. Oren Klaff’s “Pitch Anything” framework offers this fill-in-the-blank checklist:
Outline your manufacturing process and any intellectual property specific to your product. Costs should be included here but more fully dealt with — i.e., profits, margins, and projections — under the financial section.
Outline your current and foreseeable organizational structure. This can include operations — like fulfillment, logistics, and distribution — but should major on the roles and responsibilities of leaders as well as departmental objectives. The latter is often divided between product development, marketing, sales, internal support (e.g., finances, HR, and legal), and customer support.
Determine the existing market cap — total market revenue within a specific geography — and then the strengths and weaknesses of your major competitors. Resources like Statista and eMarketer are particularly helpful to uncover data. Also identify opportunities and threats as you look to the future. (This process is commonly called a SWOT analysis.)
Revisit and condense the work you’ve already completed in “People.” Include as many unique personas as necessary to put flesh-and-blood on the market you target.
A full-scale marketing strategy will be undertaken in part two of this article. There we’ll divide promotion into two online types: organic and paid.
Also in part two, we’ll examine affiliate and referral marketing, which are both examples of partnerships. For an overall plan, however, partnerships should also list vendors, suppliers, and allies: other businesses who serve a similar market as you but don’t directly compete.
List all the expenses, incomes, and assets associated with your business. Your current financial statements will serve as a foundation. For projections, the most comprehensive resource is Lightspeed Venture Partners’ “standardized e-commerce model.” Instructions on how to use the model are in the article, but it also contains a free download of the Lightspeed Ecomm Model Template (Excel).
Speaking of finances…
Building a profitable online business is a subject entire books, courses, and advanced degrees are devoted to. Not to mention a lifetime of on-the-ground learning. There are also countless tools at your disposal (a short list of which will be included at the end of this section).
Cost of goods sold (COGS) is another phrase used to represent how much you spend to acquire the products that you’ll sell or resell. This includes costs such as sourcing and manufacturing, acquisition from vendors or suppliers, as well as freight, storage, and handling costs.
Whether through paid or organic strategies, all marketing costs something. Customer acquisition costs (CAC) should be calculated first at the granular level: this includes “channels” — digital, physical, and salespeople — and individual campaigns. Second, CAC should also be calculated at the business-wide level to give you a big-picture number based on the granular strategies.
Overhead costs, also called indirect costs, exist regardless of the volume of products sold. They include fixed or variable expenses like internal hires, freelance workers, customer care services, rent for warehouse space, utility bills, insurance, along with the equipment and software used to run your business.
Pulling those costs together, we created the Wholesale Price Calculator.
If the sale price of your product — the price in aggregate (gross revenue) — exceeds your costs in aggregate, that’s profit.
Except, not quite.
In many verticals — especially those with tight margins or high competition — it’s wise to operate at a loss in order to gain new customers. Why? Because new customers should turn into repeat customers. This is where customer lifetime value (CLTV) comes in. Given how critical CLTV is to long-term success, we’re going to devote an entire section to it in part two.
For businesses in the early stages of growth, managing operations shouldn’t be guesswork nor costly.
That’s why we launched the Founder Plan, so you can put operations on autopilot and unleash your potential.
The cliché is as old as it is dangerous: “Build it, and they will come.” Unfortunately, many online businesses still fall into the trap of thinking that once their foundations are set… growth is a foregone conclusion.
At the opposite extreme are the hustlers, entrepreneurs baked in another dangerous cliché: “one percent inspiration, ninety-nine percent perspiration.” For them, success is a thing to be conquered by brute force. Beyond a few notable outliers, that path leads to burnout and heartbreak.
There’s a better way to grow your eCommerce business that follows a scalable path…
Visitors are a prerequisite for growth. After all, you have to have someone to sell to before you can sell. The deceptive thing about traffic is not all visitors are created equal.
Today, it’s not about ‘get the traffic’ – it’s about ‘get the targeted and relevant traffic.Adam Audette
Global Head of SEO at Merkle
Raw numbers should never be the goal. Instead, focus your efforts on attracting the right people (as defined in the process above). Then, divide your efforts along two parallel lines: organic and paid.
Organic doesn’t mean free. Whether you pay by the click (PPC advertising) or in terms of time and resources (inbound or content marketing): all traffic costs.
Organic simply means not referred — as in, not from an online source like Google Ads, Facebook Ads, another website, email marketing, etc. Search and social are the primary sources (also known as “channels” or “mediums”) organic traffic comes from.
Today, a staggering 85% of all product searches begin on either Amazon or a search engine. Setting aside Amazon for the moment, SEO can be a beast to master. That’s why we’ve broken it down into 10 steps with a handful of recommended resources depending on where you need to invest.
Think of this as your sine qua non of SEO — the essence of driving traffic no matter what search engine visitors are using:
Storefront keywords, Product-level keywords, Content (or, inbound) keywords
Your current SEO performance, Your competitors’ SEO performance
Your top three “authority” pages: home and two collection(s), Your product pages in order of descending value, Your overall website speed (load time)
Internal linking, External linking
Social media now touches every element of our daily lives, including how we shop. Much like the 10 steps for SEO, we’ve boiled this section down into 10 non-negotiable ingredients for a successful social-media-meets-eCommerce strategy:
Customer acquisition costs are a painful reality for businesses of any size. In The Customer Acquisition Pricing Parade, David Perell explains:
Flushed with scale-hungry investors and oceans of venture money, DNVBs go to war for the same customers on the same platforms (such as Facebook and Google). Customer acquisition costs soar as they fight for limited advertising space. As companies grow, so do costs of acquiring each additional customer.”
Of course, paid acquisition is also shrouded in acronyms. Before the strategies, here’s a short primer:
ROI = (Profit / Cost of investment) x 100
ROAS = (Revenue / Cost of marketing campaign) x 100
Note: both ROI and ROAS can be misleading. We suggest being versed in those terms but adopting a more robust strategy like yield management.
As for strategies, paid acquisition surrounds three channels…
Even though they’ve been mainstream for over a decade, few online businesses have taken the time to master platforms like Google Ads, Google Shopping (also known as Product Listing Ads), Bing Ads, and Yahoo: Search Ads.
At the core lies one overarching fallacy: bigger is better. Bigger keyword groups to capture larger search volumes to get in front of bigger audiences and land more sales. Nothing could be further from the truth.
The real key to success is smaller: small groups of tightly aligned keywords triggering ads with copywriting (ad text) that matches a user’s search as closely as possible. Here’s what that looks like…
Searching for “aluminum free deodorant” — a high-volume keyword with equally high competition — yields a host of ads that contain those exact words:
But the moment you change that search to something more specific with a lower search volume things fall apart. For “natural deodorant,” just two ads contain the exact phrase. And for “natural deodorant for women,” only a single ad includes the word “women’s.”
Bid higher and more aggressively for purchase-intent searches — “buy women’s natural deodorant” — versus general phrases — “natural deodorant.”
Having already established an organic approach to social media, the question now becomes: “How do you drill down into paid social without wasting money on vanity metrics?”
In other words, is there an equally smart approach to ROI and ROAS for social just as search? Absolutely. This time, however, the key isn’t smaller but aligning your social campaigns with the natural process shoppers instinctively follow.
Rather than use Facebook, Instagram, Pinterest, and LinkedIn to sell to “cold” leads immediately (people who have never heard of your brand or product)… start by generating awareness through low-CPM-cost campaigns that either (1) pays for engagement or (2) sends visitors to content.
Not only are brand awareness campaigns and traffic objectives cheaper than conversions and catalog sales ads, they also let you create inexpensive audiences for retargeting. Retargeted ads are built on “warm” leads who have already shown interest in your business by (1) engaging with a post, (2) visiting your site or any owned content with a retargeting pixel, or (3) abandoning your shopping cart.
Retargeting should not be generic but match each visitor’s last point of interaction. Savage x Fenty does this brilliantly by serving a carousel ad with the items shoppers left behind in their carts:
From there, retargeting campaigns should be a personalized journey that unfolds like a story. Shoelaces’ What is Customer Journey Retargeting? contains a structured overview of this process and countless illustrates of what it looks like in action.
Lastly, affiliate and referrals are paid strategies that rely on partnerships between you and either publishers who produce content associated with your products (affiliates) or existing customers (referrals). The former is similar to display ads but normally involves more detailed agreements and far better targeting and tracking.
It also means they cost more. Where display ads operate on PPC or cost-per-conversion, affiliates run on commission. This mitigates risk — you only pay for the sales an affiliate makes — but lowers margins.
Oberlo’s How to Start Affiliate Marketing with the Best Affiliate Programs contains an easy-to-follow overview and step-by-step instructions including tips on:
Referral marketing, in contrast, incentivizes word-of-mouth by offering current customers discounts and freebies in exchange for sharing and selling your products. The best referral programs foster community and brand loyalty not just transactional value by…
Starting immediately after a customer’s first purchase with click-to-share options:
As well as containing membership tiers and exclusive groups — on social — with increasing rewards:
In fact, leveraging your existing customers to create new customers leads directly into our next and arguably most-important metric for growth…
Customer lifetime value (CLTV or CLV) is the only antidote to rising acquisition costs. Moreover, by every available statistic or measurement, it’s also the heartbeat of long-term profitability.
As backward as it sounds, retention must precede acquisition.Aaron Orendorff
Editor in Chief of Shopify Plus
CLTV is the average monetary value of a single customer that combines average order value (AOV) with retention rates. As mentioned in part one, “Profit”: If the sale price of your product — the price in aggregate (gross revenue) — exceeds your costs in aggregate, that’s profit. Except, not quite.
The caveat is…
So, how do you calculate and increase CLTV? Neil Patel provides three options: simple, custom, and traditional. We suggest a straightforward formula with four variables:
ARP represents the total number of orders your average customer makes within the RTP
Using that formula as a jumping off point, you can then segment various CLTVs; namely …
With the first, ensure your business is available through onsite chat, email support, FAQ pages with accurate search, social channels (both public and private), and phone. In addition, bake CX into your post-purchase transational sequences — whether through email or chat — to monitor delivery, damage, and difficulties with the product itself.
With the second, create personalized offers centered on products frequently bought together. These can move either in a big-to-small direction (from a mattress to sheets) or small-to-big (from a single cosmetics purchase to a subscription box).
Equally important is making reordering easy.
“Most products have a shelf life,” writes Shopify in The Future of Ecommerce. “Spare customers the onslaught of generic post-purchase offers and instead delight them with timely Messenger, SMS, or email notifications.”
As a business matures, selling on a single channel becomes obsolete.
This is because 73% of all online consumers shop across multiple channels. As a result, multichannel businesses retain 89% of their customers compared to 33% for single-channel businesses. And, studies show that retailers who sell on two marketplaces on top of an online shopping cart — eCommerce site — earn 120% more revenue than those who only operate a shopping cart solution.
The downside of all that is multichannel eCommerce can dramatically increase operational complexity. Thankfully, complex doesn’t have to mean complicated... not if you have the right multichannel management tools.
But first, what is multichannel eCommerce?
Multichannel eCommerce involves a retailer selling across a variety of purchase “portals” — both online and offline.
Five channel types form the backbone of this strategy (although you don’t have to tackle each one to be successful):
We’ve already covered retail eCommerce, so let’s look at the pros and cons of the other four options as a way to determine the most lucrative opportunities for your business.
B2C marketplaces like Amazon, eBay, Walmart or Lazada are most advantageous for products with mass appeal. B2B marketplaces like Joor, Amazon Business, eWorldTrade, Manta, and TradeKey enable wholesale growth. Competition tends to be high, so a smart multichannel pricing strategy is critical to maintain a competitive advantage and healthy profit margins.
Creating an owned B2B eCommerce storefront allows you to manage customized wholesale pricing, discounts and terms, branding, as well as simplified ordering and reordering processes. There are fewer B2B customers than B2C, but customer relationships last longer and generate higher gross revenue. Also, most big-box stores will require you to use an electronic data interchange (EDI) in lieu of managing your account through an owned B2B portal.
Traditional retail isn’t going anywhere. Numerous “born-online” DNVBs have now made the move to brick and mortar. Operating a physical store, whether on a permanent or semi-permanent basis (through pop-ups), connects you and your products directly with customers. But, it’s also significantly more expensive than online selling.
Social media as a direct sales channel — and not just an organic and paid medium to generate traffic — is a new and exciting way to sell. Nearly all networks now include “native” features such as the Pinterest Buy Button, Facebook Shops, and Instagram’s shoppable posts and stories. However, be cautious: these native buying options are far from universally accepted by social-media users.
Once you’ve selected the right channels to prioritize, the final question remains: how to manage it all on the backend?
Optimizing inventory, logistics, and fulfillment rarely gets the attention it deserves. Because it lacks the sizzle and spark of front-end topics like sales and marketing, most businesses ignore it until something goes wrong.
By then, it’s usually too late:
Sixty-six percent of businesses with annual revenues less than $1 million (USD) report experiencing stockouts, and 67% experience overstocks. Interestingly, the larger an organization gets, the more those issue intensify. Seventy-three percent of businesses with revenues between $1 and $5 million report stockouts, with 74% experiencing overstocks.
The result? Frustration, waste, and missed opportunities.
The root of all this trouble comes from the tools businesses use to manage inventory and orders — or lack thereof:
Data from the 2018 Global Commerce Survey
Ironically, growth can become a back-office curse. Spreadsheet olympics lead to mistakes, angry customers, and burnt-out employees. Our own recent study of 1,197 small-to-medium businesses around the world found that — for companies with less than $1 million in annual revenue — “insufficient time” was the number one challenge holding them back:
|Meeting customer demand for products||21.00%|
|Hiring the right staff||20.00%|
|Managing my inventory||14.00%|
|Cost of fulfillment||14.00%|
|Cost of shipping||12.00%|
As a sub-category of supply chain management, inventory management oversees stock quantities, aligns and maintains orders, governs product storage and warehousing, and controls the amount of product for sale on various channels.
Put more simply, it’s all about …
This means inventory management is equally focused on maintenance — in the present — and forecasting — in the future.
Tracking inventory within an eCommerce platform is notoriously inaccurate. That’s why most businesses use manual processes like pen and paper or spreadsheets. The downside of those approaches has already been highlighted.
Any inventory-management system worth its salt should alleviate those challenges by automatically maintaining considerations like:
First, reorder level, which is nothing more than determining your average daily usage rate — the total number of units sold and shipped segmented by seasonality (depending on your industry) — multiplied by lead-time in days.
Reorder level = average daily usage rate x lead-time in days
Second, the economic order quantity (EOQ) formula. EOQ calculates the number of units your business should be adding to inventory and is aimed at reducing the total costs of inventory management. This includes factors like order costs, holding costs, and shortage costs. For EOQ, you’ll need annual demand, fixed costs (procurement and sourcing), and annual carrying cost (i.e., overhead) per unit.
No matter where you stand today, the right foundations and eCommerce strategy are essential to your success.
We’ve covered quite a bit in this two-part exploration of starting and scaling a profitable online business.
For businesses in the early stages of growth, managing operations shouldn’t be guesswork nor costly.
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